FTSE back around the 5800 level after Chinese data

The FTSE 100 traded back around the 5800 level on Tuesday, supported by heavyweight mining shares, whilst UK inflation held steady at 4.5%, applying less pressure on the Bank of England to raise interest rates.

Traders can be a fickle bunch and today’s price action reminds us of this fact. Last week they sold off their holdings in mining stocks due to a 3% fall in copper demand by China. Now with data this morning showing that Chinese inflation rose to 5.5%, slightly higher than forecasts, and industrial production slowed less sharply than feared, traders have been happy to buy back into the miners on hopes that the data reaffirms near term strength in copper demand.

However, a move by China to hike bank reserve requirements for a sixth time this year is of little surprise to the markets, given the speed and motivation shown to curb spiralling inflation. To that end, we cannot excuse the possibility of another interest rate hike soon, although China has been seen to favour rising reserve requirements in its efforts to combat inflation.

Tesco shares fall on results
Shares in Tesco fell 0.6% in trading after the retailer missed sales forecasts, with a second consecutive quarterly fall in sales at its British stores. Sales fell 0.1% in the last quarter, missing market expectations of a small rise in sales of 0.5%-0.7%, entrenching fears about a continued slide in consumer spending and escalating utility and fuel costs for British businesses.

Investors were left a little disappointed by the last quarter’s results and one fears that without the impact of that extra bank holiday and the Royal Wedding, sales may have in fact been much worse.

Traders will now eye results from peer Sainsbury’s, which updates the market tomorrow morning before the open.

UK Inflation remains at 4.5%
UK inflation remained stubbornly high at 4.5%, unchanged month on month and in line with market consensus. The pound sterling saw minimal gains on the back of the inflationary figure against the US dollar but in truth, moves were rather muted. Whilst today’s flat change in UK inflation may serve to ease the central bank’s woes temporarily, traders remain on edge about any excessive escalation in UK inflation and of the likely impact of a rate hike either towards the end of this year or early 2012.